Bone Morphogenetic Protein-4 (BMP-4) is a potent epidermal inducer and inhibitor of neural fate. We have used differential screening to identify genes involved in epidermal induction downstream of BMP-4 and report here evidence of a novel translational mechanism that regulates the division of the vertebrate ectoderm into regions of neural and epidermal fate. In dissociated Xenopus ectoderm, addition of ectopic BMP-4 leads to an increase in the expression of translation initiation factor 4AIII (eIF-4AIII), a divergent member of the eIF-4A gene family until now characterized only in plants. In the gastrula embryo, Xenopus eIF-4AIII (XeIF-4AIII) expression is elevated in the ventral ectoderm, a site of active BMP signal transduction. Moreover, overexpression of XeIF-4AIII induces epidermis in dissociated cells that would otherwise adopt a neural fate, mimicking the effects of BMP-4. Epidermal induction by XeIF-4AIII requires both an active BMP signaling pathway and an extracellular intermediate. Our results suggest that XeIF-4AIII can regulate changes in cell fate through selective mRNA translation. We propose that BMPs and XeIF-4AIII interact through a positive feedback loop in the ventral ectoderm of the vertebrate gastrula.